Forget High-Yield Traps: Coca-Cola Is the Best Dividend Stock
2026-09-05 09:15
•James Brumley •The Motley Fool
••• •• Axe Cap view
Why Chasing High Yield Can Backfire on Dividends
Stable dividend growth often beats flashy yields, with Coca-Cola offering a solid template even from afar.
South African investors often hunt for juicy dividend yields from JSE stocks to boost income. But the trap is focusing on the headline yield instead of the company's ability to grow dividends reliably. Take Coca-Cola, for example. It’s an American stock with a modest 2.4% yield, yet it has increased dividends for 64 straight years and averaged 7.4% growth annually. That’s the kind of consistency many JSE counters, even banking giants like Standard Bank or FirstRand, can struggle to match amid local economic swings and currency volatility. For rand investors, this highlights why spotting companies that can sustainably raise payouts—even if starting from a lower yield—is crucial. South African blue chips with shaky growth or high payout ratios risk becoming yield traps. Still, the dollar-rand (USD/ZAR) rate remains vital: a weaker rand can boost earnings for exporters, indirectly supporting dividend increases in sectors like mining or telecoms. However, if the rand unexpectedly strengthens, high-yield foreign dividends lose allure in rand terms, meaning the timing on global versus local income plays matters. this is just our opinion and not financial advice
Avoid chasing the highest yield stocks on the JSE alone. Focus on companies with proven dividend growth records like Standard Bank or Sanlam, and monitor USD/ZAR to gauge foreign dividend appeal. Consider trimming holdings in speculative high-yield names vulnerable to payout cuts if the economy dips.
- Standard Bank
- Sanlam
- USD/ZAR
- Rand appreciation reducing foreign dividend returns
- Local economic slowdown impacting JSE dividend growth
7/10
The article argues that dividend investors should prioritize dividend growth and stock stability over high current yields. Coca-Cola is highlighted as an excellent dividend stock despite its modest 2.4% yield, citing its 64-year streak of consecutive dividend increases and 7.4% average annual dividend growth over 30 years. The author warns against 'yield traps'—stocks with inflated yields that often underperform.
Our take is based on reporting first published by The Motley Fool.